<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-KSB/A
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1998 Commission File No. 0-23396
Skyline Multimedia
Entertainment, Inc.
(Name of Small Business Issuer in Its Charter)
New York 11-3182335
- ------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
350 Fifth Avenue, New York, New York 10118
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(212) 564-2224
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
Units consisting of Common Stock, Class A Warrants and Class B Warrants
Common Stock, $.001 Par Value Per Share
Redeemable Class A Warrants
Redeemable Class B Warrants
Check whether the Issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days:
Yes |X| No |_|
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
|_|
The Company's revenues for its most recent fiscal year were $10,834,000.
The aggregate market value of the voting stock held by non-affiliates of the
Company was $666,150 as of September 22, 1998 based on the average bid and asked
prices of such stock as of that date.
There were 1,385,000 shares of Common Stock, $.001 par value, outstanding as of
September 22, 1998. Additionally, there were 1,090,909 shares of Series A
Convertible Participating Preferred Stock, $.001 par value per share, and
290,000 shares of Class A Common Stock, $.001 par value, outstanding as of
September 22, 1998.
<PAGE>
EXPLANATORY NOTE
This Amendment No. 1 to Form 10-KSB for the year ended June 30, 1998,
reflects the changes to Items 9 through 12 of the Form 10-KSB. For each of these
Items, the Company's definitive Proxy Statement was intended to be incorporated
by reference. However, since the Company will not be filing the definitive Proxy
Statement within 120 days after the fiscal year ended June 30, 1998, the Company
is filing this Amendment to provide the information required by each of such
Items.
<PAGE>
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
Directors
- ---------
The directors and director-nominees are listed below. Other than as
described herein, there is no arrangement or understanding between any director
and any other person pursuant to which such person was elected as a director.
<TABLE>
<CAPTION>
Present Principal Occupation and
Name, Business Principal Occupation During Last Director
Address and Age (1) Five Years; Other Activities Since
- ------------------- -------------------------------- --------
<S> <C> <C>
Steven Vocino Steven Vocino was appointed by the Company's Board 1998
Age 43 of Directors as Chairman of the Board to fill a
vacancy thereon. Mr. Vocino is the Founder and
President of WTLN-TV, founded in 1989 the Teaching
Learning Network, an international television
program supplier. Mr. Vocino's background
includes a variety of fully sponsored internationally
televised sporting events (i.e., 1984 Summer Olympic
Games, the Traveling Sportsman, Tour of America and
the Pan Am Games). Apart from sports programming, Mr.
Vocino has established an excellent sponsor and
advertising following within the children's
programming market. Productions include Classroom of
the Future, College Bound, Pets and Vets and Kids
Cafe. Mr. Vocino has established an excellent
reputation within the broadcast, cable and public
television industry and has won numerous awards for
programming, including Telly, Emmy, Golden Globe,
Golden Apple, Peabody, International Peace Through
Sports Awards and Children's Television Workshop
Awards. In 1995, Mr. Vocino assumed the
responsibilities of president of New Media Inc., a
television production company focusing on the travel
industry, and was instrumental in its turnaround.
Thomas Riordan Thomas Riordan has been a non-employee director of the 1998
Age 39 Company since April 1998. Since July 1998, Mr. Riordan
has been the Treasurer of Brooklyn Union Gas Company,
a public utility ("BUG"), which recently merged to
form Keyspan Energy Corp. From July 1997 to June 1998,
Mr. Riordan was Manager of Financial Management of BUG,
and from October 1991 to June 1997, he was Manager of
Pension Trust Administration. Mr. Riordan, through
his positions at BUG, has significant experience
in all areas of corporate finance, cash management,
investment administration, and banking.
David Shamilzadeh David Shamilzadeh has been a non-employee director of 1995
Age 52 the Company since May 1995. In addition to his
service as Chief Financial Officer since April 1990,
he has served as Senior Vice President of Finance
of Allou Health and Beauty Care, Ltd. ("Allou")
since April 1991. Prior to being the Chief Financial
Officer of Allou, Mr. Shamilzadeh served as
Controller from November 1988 to April 1990. From
1976 to 1988, Mr. Shamilzadeh was employed as Chief
Executive Officer and Chief Financial Officer of DAAL
Knitwear, a manufacturer of knitwear products. Mr.
Shamilzadeh also served as credit manager of Kayser
Roth Corp. prior to his employment with DAAL
Knitwear.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation and
Name, Business Principal Occupation During Last Director
Address and Age (1) Five Years; Other Activities Since
- ------------------- -------------------------------- --------
<S> <C> <C>
John F. Barry, III John F. Barry has been a non-employee director of the 1995
Age 46 Company since July 1995. Mr. Barry is an officer and
director of the general partner of Prospect Street
and also a partner of Prospect Street Investment
Management, an institutional private equity firm
managing $300 million and which is an affiliate of
the general partner of Prospect Street. Mr. Barry
serves on various boards, including BondNet Trading
Systems, New Media, Transitions Research Corporation
and 24/7 Media, Inc. Mr. Barry was previously a
securities attorney with Davis Polk & Wardwell
and a corporate finance specialist with Merrill Lynch.
Jay Berkman In June 1998, the Company hired Jay Berkman as 1998
Age 40 Executive Director of Marketing and Business
Development and co-Chief Executive Officer and
will share the responsibilities of the office of
Chief Executive with Steven Schwartz, Executive
Director of Operations and Finance. From January 1994
to August 1997 Mr. Berkman was Senior Vice President
of BondNet Trading Systems, Inc. a provider of an
interactive bond trading system. Prior to joining the
Company, Mr. Berkman held the position of Senior
Marketing Executive with the Bank of New York
Electronic Commerce Division. Prior thereto,
Mr. Berkman held various positions in the Investment
Banking and Securities Industries during which period
he was a consultant to a small number of entertainment
and theme related enterprises. Mr. Berkman was
also appointed by the Company's Board of Directors
as a member of the Board to fill a vacancy thereon.
</TABLE>
(1) Unless otherwise noted, the address of each of these persons is
c/o the Company, 350 Fifth Avenue, New York, New York 10118.
All directors hold office until the next annual meeting of shareholders
and the election and qualification of their successors. Directors receive
compensation for serving on the Board of Directors as described below. The
Company is required to use its best efforts to elect a designee of D.H. Blair
Investment Banking Corp. ("Blair") to the Board of Directors for a period of
five years from the date of the Company's initial public offering. However, no
such designee has as yet been nominated and such requirement expires in February
1999. Officers are elected annually by the Board of Directors and serve at the
discretion of the Board (and in the case of certain executive officers pursuant
to employment agreements as described below).
There is no family relationship among any of the directors or executive
officers of the Company [,except that Mr. Vocino is related, by marriage, to Mr.
Riordan].
Executive Officers
- ------------------
The executive officers of the Company as of the fiscal year end are
listed below. There is no arrangement or understanding between any executive
officer and any other person regarding selection as an officer.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven Schwartz 31 Executive Vice President-Finance, Chief Financial Officer, Secretary and
Treasurer since 1994; Executive Director of Operations and Finance, and
Co-Chief Executive Officer since May 1998
Jay Berkman 40 Executive Director of Marketing and Business Development and Co-Chief
Executive Officer since June 1998
</TABLE>
Steven Schwartz was the Executive Vice President-Finance, Chief
Financial Officer, Secretary and Treasurer of the Company from August 1994
through May 1998, at which time he assumed the positions of Executive Director
of Operations and Finance, Chief Financial Officer, Co-Chief Executive Officer,
Secretary and Treasurer. Prior to joining the Company, Mr. Schwartz was employed
by Richard A. Eisner & Company LLP, a large regional accounting
4
<PAGE>
firm located in New York City, most recently as an Audit Supervisor, from
January 1990 to July 1994. From July 1988 through December 1989, Mr. Schwartz
was employed as a certified public accountant with Ernst & Young, a major
international accounting firm.
Jay Berkman, See "Directors".
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
The Company believes that all filing requirements under Section 16(a)
of the Securities Exchange Act of 1934, as amended, applicable to its officers,
directors and greater than 10% beneficial owners were complied with during the
fiscal year ended June 30, 1998, except that Thomas Riordan, Jay Berkman and
Steven Vocino did not timely file their respective Form 3, Statement of
Beneficial Ownership, within ten days of joining the Company (which forms were
subsequently filed), and John Barry, III, Prospect Street and Keyspan have not
yet filed their required forms with respect to the issuance of certain warrants
in connection with the April 1998 financing and the proposed conversion of
indebtedness as set forth below under "Certain Relationships and Related
Transactions". Additionally, Zalman Silber, the Company's former Chief Executive
Officer and President, has not filed his final Form 5 to reflect the disposition
of his shares of Class A Common Stock and cancellation of all derivative
securities as a consequence of his resignation from the Company.
Item 10. EXECUTIVE COMPENSATION.
Executive Compensation
The following table summarizes all compensation paid by the Company
with respect to each of the fiscal years presented for services in all
capacities of (i) the Company's Co-Chief Executive Officers as of the fiscal
year end, and the Company's former Chief Executive Officer, who resigned from
the Company effective April 15, 1998 (collectively, the "Named Executive
Officers"). No other executive officer of the Company earned in excess of
$100,000 in any of such fiscal periods.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------------------- -------------------------------------
Other
Annual Restricted All Other
Compen- Stock Options/ LTIP Compen-
Year Salary ($) Bonus ($) sation ($) Awards ($) SARs (#) Payouts ($) sation ($)
---- ---------- --------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven Schwartz 1998 $123,750 $25,000 -- -- 315,000(1) -- --
Executive Director of 1997 $95,000 $27,000 -- -- 30,000 -- --
Operations and 1996 $76,250 $15,000 -- -- --
Finance, Co-Chief
Executive Officer,
Chief Financial
Officer, Secretary and
Treasurer
Jay Berkman 1998 $3,231 $55,000(2) -- -- 500,000(3) -- --
Executive Director of
Marketing and
Business
Development, Co-
Chief Executive
Officer and Director
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------------------- -------------------------------------
Other
Annual Restricted All Other
Compen- Stock Options/ LTIP Compen-
Year Salary ($) Bonus ($) sation ($) Awards ($) SARs (#) Payouts ($) sation ($)
---- ---------- --------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Zalman Silber 1998 $217,746 -- $750,000(5) -- -- -- --
Former President, 1997 $250,000 $45,000 -- -- -- -- --
Chief Executive 1996 $147,825 $125,000 -- -- -- -- --
Officer and Director
(4)
</TABLE>
- -----------------------------
(1) In connection with his employment agreement, the Company granted Mr.
Schwartz options to purchase 100,000 shares of Common Stock at an exercise
price equal to $.4375 per share (the fair market value on the date of
grant), 50% of which are currently exercisable and the balance of which will
be exercisable on June 30, 1999. Mr. Schwartz has also been granted options
to purchase 200,000 shares of Common Stock at an exercise price equal to
$.3125 per share (the fair market value on the date of grant), which vest
50% upon the Company achieving certain performance targets for the six
months ending December 31, 1998 and 100% upon the Company achieving certain
performance targets for the fiscal year ending June 30, 1999.
(2) In connection with his employment agreement, Mr. Berkman received a signing
bonus of $25,000. Mr. Berkman's salary for fiscal 1999 is $140,000. Mr.
Berkman also received an option to receive either $30,000 in cash or 100,000
shares of restricted stock; in September 1998, Mr. Berkman exercised such
option to receive $30,000 in cash.
(3) In connection with his employment agreement, the Company granted Mr. Berkman
options to purchase 200,000 shares of Common Stock at an exercise price
equal to $.3125 per share (the fair market value on the date of grant),
which vest over the term of his employment (100,000 on June 30, 1999 and
100,000 on June 30, 2000). Mr. Berkman has also been granted options to
purchase 300,000 shares of Common Stock at an exercise price equal to $.3125
per share (the fair market value on the date of grant), which vest 50% upon
the Company achieving certain performance targets for the six months ending
December 31, 1998 and 100% upon the Company achieving certain performance
targets for the fiscal year ending June 30, 1999.
(4) Mr. Silber resigned as an employee, officer and director of the Company
effective April 15, 1998. In connection with his resignation, all of Mr.
Silber's options and warrants in the Company were canceled and his shares of
Class A Common Stock which are pledged against debt were purchased by
Project Street. See "Certain Relationships and Related Transactions."
(5) Reflects forgiveness, granted in connection with Mr. Silber's resignation,
of $750,000 of indebtedness to the Company. See "Certain Relationships and
Related Transactions."
For fiscal 1998, the Named Executive Officers reviewed the following option
grants under the Plan, and no SAR's have been granted.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Percent Of Total
Securities Options Granted To
Underlying Options Employees In Exercise or Base
Name Granted Fiscal Year Price ($/Sh) Expiration Date
- ------------------- ------------------ ------------------ ---------------- ---------------
<S> <C> <C> <C> <C>
Steven Schwartz (1) 100,000 12.3% $.4375 5/11/03
200,000 24.5% $.3125 6/14/03
15,000 1.8 $1.875 9/28/97
Jay Berkman (2) 200,000 24.5% $.3125 6/14/03
300,000 36.8% $.3125 6/14/03
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Number of Percent Of Total
Securities Options Granted To
Underlying Options Employees In Exercise or Base
Name Granted Fiscal Year Price ($/Sh) Expiration Date
- ------------------- ------------------ ------------------ ---------------- ---------------
<S> <C> <C> <C> <C>
Zalman Silber (3) -- -- -- --
</TABLE>
- -----------------------
(1) In connection with his employment agreement, the Company granted Mr.
Schwartz options to purchase 100,000 shares of Common Stock at an exercise
price equal to $.4375 per share (the fair market value on the date of
grant), 50% of which are currently exercisable and the balance of which will
be exercisable on June 30, 1999. Mr. Schwartz has also been granted options
to purchase 200,000 shares of Common Stock at an exercise price equal to
$.3125 per share (the fair market value on the date of grant), which vest
50% upon the Company achieving certain performance targets for the six
months ending December 31, 1998 and 100% upon the Company achieving certain
performance targets for the fiscal year ending June 30, 1999.
(2) In connection with his employment agreement, the Company granted Mr. Berkman
options to purchase 200,000 shares of Common Stock at an exercise price
equal to $.3125 per share (the fair market value on the date of grant),
which vest over the term of his employment. Mr. Berkman has also been
granted options to purchase 300,000 shares of Common Stock at an exercise
price equal to $.3125 per share (the fair market value on the date of
grant), which vest 50% upon the Company achieving certain performance
targets for the six months ending December 31, 1998 and 100% upon the
Company achieving certain performance targets for the fiscal year ending
June 30, 1999.
(3) All of Mr. Silber's options and warrants previously granted have been
canceled in connection with his resignation effective as of April 15, 1998.
An aggregate of 825,000 stock options were granted to all executive
officers and directors as a group during the fiscal year ended June 30, 1998.
Such options are exercisable at prices per share ranging from $.3125 to $[___],
which reflects the fair market value on the dates of grant. None of such options
were exercised during fiscal 1998.
The following table reflects options exercised during the fiscal year
and the year-end values for in-the-money options for each of the Named Executive
Officers.
Aggregated Option Exercises in Last Fiscal
Year and Fiscal Year End Option Value Table
-------------------------------------------
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options
Shares Acquired Options at Fiscal Year-End at Fiscal Year-End
Name on Exercise Value Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable)
- ---- --------------- -------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Steven Schwartz -- -- 155,000/250,000(1) (2)
Jay Berkman -- -- -0-/500,000(3) (2)
Zalman Silber (4) -- -- -- --
</TABLE>
- -----------------------
(1) In connection with his employment agreement, the Company granted Mr.
Schwartz options to purchase 100,000 shares of Common Stock at an exercise
price equal to $.4375 per share (the fair market value on the date of
grant), 50% of which are currently exercisable and the balance of which will
be exercisable on June 30, 1999. Mr. Schwartz has also been granted options
to purchase 200,000 shares of Common Stock at an exercise price equal to
$.3125 per share (the fair market value on the date of grant), which vest
50% upon the Company achieving certain performance targets for the six
months ending December 31, 1998 and 100% upon the Company achieving certain
performance targets for the fiscal year ending June 30, 1999.
7
<PAGE>
(2) These options were not in-the-money at June 30, 1998.
(3) In connection with his employment agreement, the Company granted Mr. Berkman
options to purchase 200,000 shares of Common Stock at an exercise price
equal to $.3125 per share (the fair market value on the date of grant),
which vest over the term of his employment (100,000 on June 30, 1999 and
100,000 on June 30, 2000). Mr. Berkman has also been granted options to
purchase 300,000 shares of Common Stock at an exercise price equal to $.3125
per share (the fair market value on the date of grant), which vest 50% upon
the Company achieving certain performance targets for the six months ending
December 31, 1998 and 100% upon the Company achieving certain performance
targets for the fiscal year ending June 30, 1999.
(4) In connection with his resignation effective as of April 15, 1998, all of
Mr. Silber's options and warrants in the Company were canceled. See "Certain
Relationships and Related Transactions."
Compensation of Directors
- -------------------------
Directors who are not salaried employees of the Company receive options
to purchase 25,000 shares of Common Stock upon their initial election or
appointment to the Board and options to purchase 12,500 shares of Common Stock
upon their re-election to the Board. All of such options granted as set forth
herein are exercisable one year from the date of grant at an exercise price
equal to the fair market value on the date of grant. Non-employee directors are
also entitled to reimbursement for reasonable expenses incurred in attending any
such meetings. Messrs. Riordan and Vocino each received options to purchase
25,000 shares of Common Stock in July 1998 in connection with their appointments
to the Board. Subsequent to fiscal year end, Steven Vocino, Chairman of the
Board of Directors, received 600,000 shares of restricted Common Stock of the
Company in consideration for services rendered to the Company in connection with
negotiation of favorable settlements with certain of the Company's creditors.
Employment Contracts
- --------------------
In June 1998, the Company hired Jay Berkman as Executive Director of
Marketing and Business Development. Mr. Berkman entered into a two-year
employment contract with the Company and will receive an annual salary of
$140,000. Mr. Berkman also received a signing bonus of $25,000 and an option to
receive either $30,000 in cash or 100,000 shares of restricted stock, which he
exercised in September 1998 to receive cash. Mr. Berkman has been granted
options to purchase 200,000 shares of Common Stock at an exercise price equal to
$.3125 per share (the fair market value on the date of grant) vesting over the
term of his employment (100,000 on June 30, 1999 and 100,000 on June 30, 2000).
Mr. Berkman has also been granted options to purchase 300,000 shares of Common
Stock at an exercise price equal to $.3125 per share (the fair market value on
the date of grant), which vest 50% upon the Company achieving certain
performance targets for the six months ending December 31, 1998 and 100% upon
the Company achieving certain performance targets for the fiscal year ending
June 30, 1999. Mr. Berkman also has the option to receive either $200,000 in
cash or the immediate vesting of the options to purchase 500,000 shares of
Common Stock pursuant to his employment agreement in the event of the sale of
the Company or substantially all of its assets or a merger in which the Company
is not the survivor or similar events, during the term of his employment
agreement. Mr. Berkman will share the responsibilities of the office of Chief
Executive with Steven Schwartz.
Mr. Schwartz, Executive Director of Operations and Finance, Chief
Financial Officer, Co-Chief Executive Officer, Secretary and Treasurer of the
Company, has entered into a one-year employment contract with the Company and
will receive a salary of $140,000. Mr. Schwartz has been granted options to
purchase 100,000 shares of Common Stock at an exercise price equal to $.4375 per
share (the fair market value on the date of grant) 50% of which are currently
exercisable and the balance of which will be exercisable on June 30, 1999. Mr.
Schwartz has also been granted options to purchase 200,000 shares of Common
Stock at an exercise price equal to $.3125 per share (the fair market value on
the date of grant), which vest 50% upon the Company achieving certain
performance targets for the six months ending December 31, 1998 and 100% upon
the Company achieving certain performance targets for the fiscal year ending
June 30, 1999.
8
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information as of the Record
Date with respect to the number of shares of each class of voting stock
beneficially owned by (i) those persons known to the Company to be the owners of
more than five percent of any such class of voting stock of the Company, (ii)
each director of the Company and (iii) all directors and executive officers of
the Company as a group. Unless otherwise indicated, each of the listed persons
has sole voting and investment power with respect to the shares beneficially
owned by such shareholder.
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK COMMON STOCK
Percent of Percent of
Name and Beneficial Total Beneficial Total
Address(1) Ownership Outstanding (2) Ownership Outstanding
- -------- --------- --------------- ---------- -----------
<S> <C> <C> <C> <C>
David Shamilzadeh 20,000 1.0% -- --
(5)
John F. Barry, III 98,418,816(5) 98.1% 290,000(8) 100%
(6) (7)(8)(9)(10)
Steven Vocino (11) 600,000 30.2% -- --
Jay Berkman (12) -- -- -- --
Thomas Riordan -- -- -- --
(13)
The Bank of New 90,584,669 97. 9% -- --
York, as Trustee (14)(15)
for the Employees
Retirement Plan of
KeySpan Energy
Corp.
Prospect Street 98,398,816 98.1% 290,000(8) 100%
NYC (7)(8)(9)(10)
Discovery Fund,
L.P.
All directors and 189,778,485 99.0% 290,000(8) 100%
executive officers (15)
as a group (6
persons) (17)
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK
Percent of
Percent of Beneficial Percent of Actual
Beneficial Total Ownership Total Voting
Ownership Outstanding (3) Outstanding(3) Power (4)
---------- ----------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
David Shamilzadeh -- -- -- -- --
(5)
John F. Barry, III 1,090,909(9) 100% 3,468(10) 41% 38.6%
(6)
Steven Vocino (11) -- -- -- -- 5.5%
Jay Berkman (12) -- -- -- -- --
Thomas Riordan -- -- -- -- --
(13)
The Bank of New -- -- 4,993(15) 59.0% --
York, as Trustee
for the Employees
Retirement Plan of
KeySpan Energy
Corp.
Prospect Street 1,090,909(9) 100% 3,468(10) 41% 38.6%(16)
NYC
Discovery Fund,
L.P.
All directors and 1,090,909(9) 100% 8,461(10) 100% 44.1%
executive officers (15)
as a group (6
persons) (17)
</TABLE>
- ------------------------
(1) Unless otherwise noted, the address of each of these persons is c/o the
Company, 350 Fifth Avenue, New York, New York 10118.
(2) Based on an aggregate of 1,985,000 shares of Common Stock issued and
outstanding as of the Record Date, and includes shares subject to currently
exercisable options and warrants for each person or group named.
(3) The issuance of all shares of Series B Preferred Stock set forth in this
table is subject to shareholder approval as discussed below (See Item 12.
"Certain Relationships and Related Transactions") or waiver of such approval
requirement by the Nasdaq Stock Market.
9
<PAGE>
(4) Does not include Common Stock issuable upon exercise of options and
warrants, assumes no exercise of the right of the holder of the Series A
Preferred Stock to acquire up to 50.1% of the total voting power of the
Company and to elect a majority of the Board of Directors under certain
circumstances and limits such holder's voting power to 24.9% of the total
outstanding voting power, and does not include shares of Common Stock
issuable upon conversion of the Series B Preferred Stock.
(5) Includes options to purchase 20,000 shares of Common Stock held by such
individual which are currently exercisable.
(6) Beneficial ownership of all the securities set forth in (7)-(10) below is
attributed to Mr. Barry pursuant to his position as an officer and director
of the general partner of Prospect Street and its affiliates. See "Certain
Relationships and Related Transactions." Mr. Barry disclaims beneficial
ownership of the shares of Common Stock, Class A Common Stock, Series A
Preferred Stock, Series B Preferred Stock and Warrants held by Prospect
Street and its affiliates. The address of Prospect Street is 250 Park
Avenue, New York, New York 10177.
(7) Includes a warrant held by Prospect Street to purchase up to 86,500,000
shares of Common Stock and warrants to purchase up to 146,341 shares of
Common Stock, all of which were received in connection with certain loans
provided to the Company. In addition, the beneficial ownership of Prospect
Street also includes an aggregate of 52,700 shares of Common Stock, and
warrants to purchase up to 43,902 shares of Common Stock received in
connection with certain loans provided to the Company, which securities are
held by affiliates of Prospect Street.
(8) Includes 290,000 shares of Class A Common Stock (which shares are entitled
to five votes per share and vote together with the Common Stock as a single
class on all matters to be voted on by the holders of the Common Stock)
which Prospect Street purchased from the Company's former president,
subject to such shares being held as collateral for a loan, and pursuant to
an irrevocable proxy, Prospect Street has the right to vote such shares.
(9) Includes 1,090,909 shares of Series A Preferred Stock held by Prospect
Street which, in the aggregate, are convertible into approximately
7,538,181 shares of Common Stock and which vote together with the Common
Stock as a single class on all matters to be voted on by the holders of the
Common Stock; except that the holder of the Series A Preferred Stock has
the right, voting as a separate class, to elect two directors to the
Company's Board of Directors. Mr. Barry is the designee of Prospect Street.
Pursuant to the terms of the Series A Preferred Stock, Prospect Street will
be able to vote up to 24.9% of the total shares eligible to vote at the
Meeting. See footnote (16) below. Additionally, pursuant to the Certificate
of Incorporation of the Company, so long as 272,727 shares of Series A
Preferred Stock remain outstanding, and upon notice to the Company,
Prospect Street, as the holder of the Series A Preferred Stock, has the
right to obtain up to 50.1% of the total voting power of the Company and to
elect a majority of the Board of Directors in the event the holders of the
Series A Preferred Stock determine in good faith that such action is
reasonably necessary for the protection of their investment. Since Prospect
Street is a Small Business Investment Company subject to the regulatory
oversight of the SBA, the exercise of this control provision cannot be made
arbitrarily and is subject to SBA review.
(10) Includes 3,468 shares of Series B Preferred Stock held by Prospect Street
which, in the aggregate, are convertible into approximately 2,667,692
shares of Common Stock and which vote together with the Common Stock as a
single class on all matters to be voted on by the holders of the Common
Stock. The issuance of the Series B Preferred Stock is subject to
shareholder approval as set forth in Proposal 5.
(11) Reflects 600,000 shares of restricted Common Stock, which shares become
unrestricted on July 2, 1998.
(12) Excludes options to purchase 200,000 shares of Common Stock which vest over
the term of Mr. Berkman's employment(100,000 on June 30, 1999 and 100,000
on June 30, 2000), and options to purchase 300,000 shares of Common Stock
which vest 50% upon the Company achieving certain performance targets for
the six
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months ending December 31, 1998 and 100% upon the Company achieving certain
performance targets for the fiscal year ending June 30, 1999.
(13) Mr. Riordan is the designee of Keyspan.
(14) Includes a warrant held by Keyspan to purchase up to 86,500,000 shares of
Common Stock and a warrant to purchase 243,900 shares of Common Stock,
which were received in connection with certain loans provided to the
Company. Beneficial ownership of such securities are attributed to Keyspan
and its affiliates.
(15) Includes 4,993 shares of Series B Preferred Stock which, in the aggregate,
are convertible into approximately 3,840,769 shares of Common Stock. The
issuance of the Series B Preferred Stock is subject to shareholder approval
as set forth in Proposal 5.
(16) Prospect Street is a Small Business Investment Company subject to
regulatory oversight by the SBA. Pursuant to certain SBA restrictions,
Prospect Street will only be able to vote up to 24.9% of the total shares
eligible to vote at the Meeting, subject to Prospect Street's right to vote
50.1% of the total shares eligible to vote under certain circumstances.
(17) Includes all shares beneficially owned by Messrs. Barry, Shamilzadeh,
Vocino and Berkman and shares beneficially held by Prospect Street and
Keyspan. See footnotes (5) through (12), (14) and (15) above. Also includes
options to purchase 155,000 shares held by Steven Schwartz, but excludes
certain options held by Mr. Schwartz to purchase 50,000 shares of Common
Stock which vest on June 30, 1999 and options to purchase 200,000 shares of
Common Stock, which vest 50% upon the Company achieving certain performance
targets for the six months ending December 31, 1998 and 100% upon the
Company achieving certain performance targets for the fiscal year ending
June 30, 1999. See "Executive Compensation" below.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Certain Relationships and Related Transactions
----------------------------------------------
On July 7, 1995, in order to pay the Company's creditors, provide capital
for future growth and expansion and allow for an extensive promotional and
marketing campaign, the Company consummated a private placement with Prospect
Street whereby 1,090,909 shares of Series A Preferred Stock were sold for gross
proceeds of $2.75 per share aggregating $3,000,000. The Preferred Stock was
convertible into Common Stock of the Company at any time on a share-for-share
basis, which was substantially adjusted to a conversion rate of 6.91 shares of
Common Stock for each share of Preferred Stock. The holders of the Preferred
Stock are entitled to an aggregate of up to 24.9% of the outstanding voting
power of the Company on all matters which come before the shareholders.
Additionally, so long as 272,727 shares of Preferred Stock remain outstanding,
the holders thereof will have the ability to obtain up to 50.1% of the
outstanding voting power of the Company and elect a majority of the Board of
Directors in the event the holders of the Preferred Stock determine in good
faith that such action is reasonably necessary for the protection of their
investment. Since Prospect Street is a Small Business Investment Company subject
to the regulatory oversight of the SBA, the exercise of this control provision
cannot be made arbitrarily and is subject to SBA review. The Preferred Stock is
subject to a Registration Rights Agreement granting both demand and piggyback
registration rights.
On December 20, 1996, the Company entered into the Senior Credit Agreement
with Prospect Street and Bank of New York, as Trustee for the Employees
Retirement Plan of BUG, to obtain up to $4,100,000 in senior unsecured
subordinated debt which accrues interest at an annual rate of 14% and requires
the payment of both principal and interest five years from the date of issuance.
The Senior Credit Agreement was subsequently amended to increase the amount of
the subordinated debt to $4,450,000 and to provide for the inclusion of
additional lenders. Of such increased amount $2,500,000 was received by the
Company from BUG and a related pension fund and $1,950,000 was received by the
Company from Prospect Street and its affiliates. In connection with the Senior
Credit Agreement, BUG and its related pension fund received warrants to purchase
up to an aggregate of 243,904 shares of Common Stock and Prospect Street and its
affiliates received warrants to purchase up to an aggregate of
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190,242 shares of Common Stock, each exercisable until December 20, 2006 at an
exercise price of $4.25 per share. A purchase price of $1.00 per warrant was
allocated from the subordinated debt proceeds received by the Company. As part
of this financing, on November 6, 1996, Prospect Street provided the Company
with a demand loan of $1,500,000, at an annual interest rate of 14%, which loan
was exchanged for a portion of the subordinated debt under the Senior Credit
Agreement.
During June 1997, the Company received an additional $500,000 loan from
Prospect Street. During December 1997, the Company received a $500,000 loan from
a bank bearing interest at the rate of 7.6% per annum that is secured by a
Certificate of Deposit from Prospect Street.
On April 15, 1998, the Company and its subsidiaries entered into the
Senior Secured Credit Agreement with Keyspan and Prospect Street (together with
Keyspan, the "Institutional Investors") relating to the financing of an
aggregate of $935,000 ($500,000 from Keyspan and $435,000 from Prospect Street)
(the "Financing"), in exchange for receipt by the Institutional Investors of
senior secured promissory notes (the "Notes") and the issuance of warrants to
purchase shares of Common Stock of the Company (the "Warrants"). The Notes
matured on July 15, 1998 (the "Maturity Date"), accrue interest at a per annum
rate equal to 14% and are secured (with certain exceptions) by all the assets of
the Company and its subsidiaries. The Notes and the obligations under the Credit
Agreement and the Warrants are also collateralized by a pledge of the stock of
the Company's subsidiaries. In connection with the Credit Agreement, Keyspan
also received the right to appoint two members to the Company's Board of
Directors. Further, as a result of the issuance of Warrants in connection with
the Financing, the conversion rate of the Series A Preferred Stock held by
Prospect Street was adjusted from a conversion rate of one share of Common Stock
for each share of Series A Preferred Stock to a conversion rate of 6.91 shares
of Common Stock for each share of Series A Preferred Stock. On May 29, 1998, the
credit agreement was amended to increase the loan amount funded by Keyspan from
an aggregate of $500,000 to $1,850,000 which increased the total financing from
$935,000 to $2,285,000. Additionally, subsequent to June 30, 1998, the financing
was further amended to include under its terms the $500,000 demand loan to the
Company from Prospect Street in June 1997.
The Warrants are exercisable for 94% of the fully diluted Common Stock of
the Company (after issuance) at an exercise price of $.375 per share.
Accordingly, the exercise of such Warrants by the Institutional Investors will
result in a significant change in the ownership of the Company. The Company
approved this transaction after consideration of its alternatives and financial
situation. The Warrants are exercisable in the aggregate for approximately 173
million shares of Common Stock (86.5 million for each of Keyspan and Prospect
Street) for an aggregate exercise price of approximately $64.9 million, or, at
the option of the holder, pursuant to a cashless exercise feature, the
difference in shares between 173 million shares and that number of shares having
a market value equal to $64.9 million (i.e. at a market price per share of $.40,
an aggregate of 10.8 million shares of Common Stock will be issued) resulting in
significant dilution to existing shareholders.
In connection with the Financing, Zalman Silber, the Company's former
President and Chief Executive Officer, agreed to relinquish all positions in the
Company and its subsidiaries held by him and to deliver to the Company for
cancellation all of his options and warrants in the Company in exchange for the
forgiveness of amounts previously agreed to be refunded by Mr. Silber to the
Company in the amount of $750,000 and payment by the Company to Mr. Silber of
$206,250, and to transfer to Prospect Street all of his 960,000 shares of Class
A Common Stock (670,000 shares of which have been forfeited to the Company on
June 30, 1998 pursuant to existing escrow arrangements) in consideration for an
aggregate of $100 and the Financing by the Institutional Investors. The Company
and Mr. Silber also exchanged general releases. Mr. Silber has granted an
irrevocable proxy with respect to the vote of such Class A Common Stock to
Prospect Street until the remaining 290,000 shares of Class A Common Stock,
which are currently pledged as collateral in connection with a loan, can be
transferred upon release of such pledge. Mr. Silber has also agreed not to
compete with the Company or its subsidiaries in New York City for a period of
ten years.
On September 2, 1998, the Company and its subsidiaries entered into a Debt
to Equity Conversion Agreement (the "Conversion Agreement") with its
Institutional Investors. Pursuant to the Conversion Agreement, the Institutional
Investors have agreed, subject to certain conditions, to convert all of their
respective indebtedness of the Company (the "Debt"), approximately $7.235
million principal amount plus approximately $1.225 million of
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accrued interest thereon through September 30, 1998 (the "Initial Conversion
Value") into approximately 8,460 shares of Series B Convertible Redeemable
Preferred Stock of the Company (the "Series B Preferred Stock"). The
Institutional Investors have agreed to such conversion in an effort to comply
with certain Nasdaq SmallCap Market ("Nasdaq") net worth criteria to maintain
the listing of the Company's Common Stock on Nasdaq and to make the Company's
balance sheet and capital structure more attractive to potential investors and
the financial community. Provided the Company's listing of its Common Stock on
Nasdaq is maintained, the conversion of the Debt will be subject to the approval
of the issuance of the Series B Preferred Stock by the shareholders of the
Company at the next annual meeting of shareholders or, alternatively, receipt
from Nasdaq of a waiver of such shareholder approval requirement. In the event
the Company's listing of its Common Stock on Nasdaq is not maintained, it is
unclear whether or not the Institutional Investors will convert all or a portion
of the Debt.
The holders of shares of Series B Preferred Stock will be entitled to a
10% cumulative dividend when, as and if declared by the Board. The shares of
Series B Preferred Stock are convertible by the holders thereof into that number
of shares of Common Stock of the Company calculated by dividing $1.30 into the
Initial Conversion Value of the Series B Preferred Stock (i.e., $1,000 per share
or an aggregate of $8.46 million), subject to adjustment, plus any accumulated
dividends. The Series B Preferred Stock is redeemable by the Company, in whole
or in part, at any time upon payment of the Initial Conversion Value per share
(as adjusted from time to time), plus any accumulated dividends. The
Institutional Investors also have certain registration rights with respect to
the Common Stock issuable upon conversion of the Series B Preferred Stock.
The Company believes that all transactions between the Company and its
officers, directors and employees described above are on terms no less favorable
to the Company than could have been obtained from unaffiliated parties under
similar circumstances.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By: /s/ Steven Schwartz
--------------------------------------------------------
Steven Schwartz, Executive Director of Operations and
Finance, Co-Chief Executive Officer, Principal Financial
and Accounting Officer, Secretary and Treasurer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Date: October 27, 1998 /s/ Jay Berkman
--------------------------------------------------------
Jay Berkman, Executive Director of Marketing and
Business Development, Co-Chief Executive Officer and
Director
Date: October 27, 1998 /s/ Steven Schwartz
--------------------------------------------------------
Steven Schwartz, Executive Director of Operations and
Finance, Co-Chief Executive Officer, Principal Financial
and Accounting Officer, Secretary and Treasurer
Date: October 27, 1998 /s/ Steven Vocino
--------------------------------------------------------
Steven Vocino, Chairman of the Board
Date: October 27, 1998 /s/ Thomas Riordan
--------------------------------------------------------
Thomas Riordan, Director
Date: October __, 1998
--------------------------------------------------------
David Shamilzadeh, Director
Date: October 27, 1998 /s/ John F. Barry, III
--------------------------------------------------------
John F. Barry, III, Director
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